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Mutual Funds

Real Estate vs Mutual Funds

Written by - Akshatha Sajumon

January 12, 2022 8 minutes

Investing is the best way to secure one’s future and of their families in the face of uncertainty. Investors can choose from multiple investment options depending on their budget or financial goals as well as risk-return expectations and investment horizon. While owning a home is a dream for every individual, there can be other investment options too that can be attractive and can provide good returns too. Mutual funds are one of the many investment options that provide good returns as well as cater to all types of investors whether they are risk-averse or aggressive.

Let us discuss the key differences between investments in real estate and mutual fund.

What is real estate investment?

Real estate is the investment in land or house and is a long-term investment. It is one of the most traditional forms of investment and is a long-term investment option. It is a capital intensive investment and requires a huge influx of money to be pooled in to buy a property. Apart from traditional real estate investment options like investing in land, apartments, or independent houses, investors can also invest in REIT (Real Estate Investment Trust). Investors receive interest or dividend income and the capital investment is received upon maturity. 

What are mutual funds?

Mutual funds are a pool of individual stocks or debt instruments that are pooled together to form a fund. These funds are professionally managed funds by expert fund managers that aim to provide better returns to the investors. The risk of investment in mutual funds is relatively lower as compared to individual stocks and the benefit of diversification provides a better investment opportunity.

What are the basic differences between real estate and mutual fund investment?

There are certain basic differences between real estate and mutual funds. Some of such key differences are highlighted below.

Capital investment 

Real estate is a capital intensive investment. For an average Indian, buying a property usually requires external financial assistance in the form of loans. Mutual funds on the other hand are a very versatile investment option when it comes to capital investment. Investors can invest based on their financial position or the surplus funds available to them. Also unlike real estate, investors do not have to shell out a huge sum of money to buy a property. They can opt for perpetual sip where a nominal fixed amount will be deducted from the bank account of the investor at regular intervals thereby relieving them of huge capital investment.  


The returns of real estate depend on the area and the relative demand-supply forces at the time of investment. Also, in many metro cities like Mumbai, Bengaluru, or Delhi, the real estate proves have become more or less stagnant. Investors can still earn comparatively decent returns by investing in semi-urban or rural areas. 

The returns on mutual funds on the other hand are quite dynamic. The performance of mutual funds is subject to market volatility, however, it can potentially provide better returns than real estate.


Risk is part of every investment. The risk in mutual funds can be managed by investing in funds that have a relatively lower risk. The risk in real estate however can be quite high especially in the case of an economic slowdown. The risk in mutual funds may be higher in the short term if invested if you invest in equity mutual funds, but the same can be reduced in the longer run. This cannot be said about real estate. It is a volatile market and the capital loss in real estate can drain the life savings of any investor. 


Taxation is a key feature to be considered while investing in any market. Both real estate and mutual funds are subject to capital gain tax. Mutual funds are taxed based on their dominant asset class. There is also a special category of tax saving mutual funds, ELSS funds that provide better tax efficiency. Also, the long-term capital gains on equity mutual funds have an exemption of up to Rs, 1,00.000.

Real estate can also provide tax benefits in the form of deductions for the loan taken to buy property. However, there are many conditions to be met to be eligible for such deductions. Investors also get the benefit of indexation. However, the overall tax benefit of mutual funds is higher than that of real estate. 


Liquidity is one of the major qualities of a good investment option. Mutual funds are one of the most liquid assets that an investor can have. Investors can immediately liquidate their mutual fund holdings and exit the market to meet their financial needs. Also, the cost and the legal requirements of exiting their investment are nominal which do not create any hurdles in liquidation. On the other hand, exiting the real estate investment is not easy. It is a time-consuming process that may not help the investor in meeting the immediate financial obligations at the time of need. 

Regulated market

A regulated investment market is essential to safeguard the interests of the investor. The real estate market has no presiding authority to regulate the market and the chance for exploitation of the investors increases. Mutual funds are regulated by SEBI and function with set guidelines for every participant in the market. This ensures that there are no disputes regarding the investment procedure or the redemption of investments. However, in case of any disputes, they are settled through structured channels giving quick resolution to the aggrieved parties. This benefit is not available in the real estate market. Even though RERA is the regulator, there are many cases where homebuyers are stuck with incomplete properties and other such hassles. 

Which is a better investment option?

Having a personal secure space is necessary for every person. However, with constant migration on account of employment, it makes little sense to block one’s funds in a fixed asset like a house or property than staying in affordable rental spaces which are easily available, especially in the post-Covid tenants market. Also, investing in mutual funds is always better than having a second home. The returns within a year can immediately justify the cost of investment. The risk is also manageable in mutual funds markets and the option to immediately exit the market is an added advantage that is missing in real estate investments. Hence, mutual funds do have an edge over real estate investments.


Real estate and mutual funds both are quite attractive investment options. But it is essentially comparing apples to oranges. As mentioned above, lower risk along with better regulation and taxation can make mutual funds an attractive option. The need for a tangible fixed asset like real estate cannot be ignored. Hence, the decision between mutual funds and real estate depends on various factors and is a case-specific answer.


What is the biggest advantage in returns from mutual funds?

The returns of mutual funds have the benefit of compounding which can help in beating inflation. This benefit is not available in returns from real estate.

Can investors invest in parts in real estate?

The option to invest in smaller portions as low as Rs. 500 (like SIPs in mutual funds) is not available in the real estate market. While buying a home, investors can pay the builder in parts which is a percentage of the total cost of the home based on the stage of completion of the project. However, such part payments are also huge and require strong financial backing.

What is the maximum exemption available in long-term capital gains on mutual funds?

The maximum exemption available in long-term capital gains on equity mutual funds is Rs. 1,00,000.

What are the various options for investment under mutual funds?

Mutual can be classified under various categories. The broad classification of mutual funds based on the assets allocation is equity funds, debt funds, and hybrid funds.

Do investments in real estate provide the benefit of indexation?

Yes. Investors get the benefit of indexation on long-term capital gains arising from the sale of real estate investments. Long-term investment in real estate is a property held for a period of more than 3 years. Any property sold before the completion of 3 years is classified as a short-term capital asset.

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